International Monetary Fund chief Christine Lagarde has been placed under formal investigation by French magistrates for negligence in a political fraud affair dating from 2008 when she was finance minister, her lawyer said on Wednesday.

Lawyer Yves Repiquet told Reuters that Lagarde, who this week was questioned by magistrates in Paris for a fourth time under her existing status as a witness in the long-running saga, said the step was unfounded.

"We are appealing it," Repiquet said by telephone, adding that Lagarde, who was due to return to IMF headquarters in Washington later on Wednesday, had no plans to resign.

In French law, magistrates place someone under formal investigation when they believe there are indications of wrongdoing, but that does not always lead to a trial.

The inquiry relates to allegations tycoon Bernard Tapie, a supporter of conservative ex-president Nicolas Sarkozy, was improperly awarded 403 million euros (320 million pounds) in an arbitration to settle a dispute with now defunct, state-owned bank Credit Lyonnais.

The inquiry has already embroiled several of Sarkozy's cabinet members and France Telecom CEO Stephane Richard, who was an aide to Lagarde when she was Sarkozy's finance minister.

It seems that being IMF chief is a bit of a poisoned chalice at the minute.